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Title Market expectation shifts in option-implied volatilities in the US and UK stock markets during the Brexit vote
Authors Bielykh, A.
Pysarenko, S.
Dong Meng, Ren
Kubatko, Oleksandr Vasylovych  
ORCID http://orcid.org/0000-0001-6396-5772
Keywords Brexit referendum
financial modeling
option-implied volatilities
stock exchange
Type Article
Date of Issue 2021
URI https://essuir.sumdu.edu.ua/handle/123456789/87642
Publisher LLC “Consulting Publishing Company “Business Perspectives”
License Creative Commons Attribution 4.0 International License
Citation Artem Bielykh, Sergiy Pysarenko, Dong Meng Ren and Oleksandr Kubatko (2021). Market expectation shifts in option-implied volatilities in the US and UK stock markets during the Brexit vote. Investment Management and Financial Innovations, 18(4), 366-379. doi:10.21511/imfi.18(4).2021.30
Abstract This paper investigates the effect of the Brexit vote on the connection between UK stock market expectations and US stock market returns. To gauge UK stock market expectations, the option-implied volatilities of the FTSE 100 index are calculated in the period starting five months before and ending four months after the Brexit referendum. To keep the analysis “clean”, it stops right before the 2016 US presidential elections. It uses an OLS regression to estimate the change in the relationship between US and UK stock market expectations. The main findings show that the US and UK stock markets became somewhat less integrated four months after the Brexit referendum compared to the five months before it. The S&P 500 Index returns have a statistically significant impact on implied volatilities of the FTSE 100 only before the Brexit referendum. However, the British risk-free rate (LIBOR) became a statistically significant factor affecting FTSE 100 implied volatilities only after Brexit. This analysis may be used by decision-makers in the money management industry to act appropriately during Black Swan events. When UK citizens unexpectedly voted in favor of Brexit, the risk-free rate dropped, making it cheaper to invest, increasing the Sharpe ratios of equity portfolios. Coupled with increased uncertainty, this caused portfolio reallocations. In turn, expected volatility measured by options-implied volatility increased.
Appears in Collections: Наукові видання (ННІ БіЕМ)

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Canada Canada
18283972
China China
1
Germany Germany
1
Hungary Hungary
1
India India
1
Ireland Ireland
60524
Italy Italy
9142123
Lithuania Lithuania
1
Netherlands Netherlands
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Portugal Portugal
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Ukraine Ukraine
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United Arab Emirates United Arab Emirates
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United Kingdom United Kingdom
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United States United States
1992561337
Vietnam Vietnam
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